Looking Into The Derivative Beast's Cave

2/23/2008

Elaine Meinel Supkis

Here we go again: a reader alerts me to some very important and interesting government documents and charts! The Office of the Controller of the Currency which supposedly is ensuring a safe and sound national banking system...HAHAHA. They should send officers over to the Federal Reserve and arrest Bernanke and his gang! The Ambac rescue is impossible but the people wishing to wave wands and make all this go away can't resist one more incantation. Shazzam! And Dodd wonders why the SEC has been asleep at the wheel. I wonder when Dodd will finally wake up. Off the cliff! But first, a whole battery of charts, graphs and snide remarks.

SEC drift said to prevent action on credit crunch

Mr. Cox, along with other top-level administration officials, has cautioned against quick-fire regulatory or enforcement responses to the worsening credit crisis, noting that the market instead should be left to work it out. But some, including prominent members of Congress, think the SEC has been moving too slowly to bolster investor confidence and fix the accounting and disclosure loopholes that led to the credit crunch.

“The idea that the market's going to address this in any short term...the facts don't give you any sense of confidence that's going to be the case,” Sen. Christopher Dodd said last week. The Connecticut Democrat, who chairs the Banking Committee, said he wants a better assessment from the SEC about “who was asleep at the switch” during the events preceding the credit crunch.

Dodd finally got the chair just in time for a total banking failure. I believe in framing all questions to drive to the heart of any matter that concerns me. Since sane watchers could see this crisis creeping up on us a long time ago, the real question is, who created the conditions for this mess? It certainly was not the SEC. Indeed, we know the name of the guy: Bush. He conspired with Greenspan to exploit fears of a recession when the Dot Com bubble burst. Using this as a cover, he cut taxes while Greenspan dropped interest rates to levels not seen since 1933. This allowed not only mega-balloons here but everywhere on earth since Japan is doing the same things.

The problem with closing all the rat holes gnawed in the woodwork by lobbyists is simple: Congress is the rat that chewed these holes in the first place. And to kill the rats, you need to cut off the money flow from the rats to the politicians! Far from 'who was asleep at the switch' we need to change this bait and switch game to 'how can we stop Congress and Presidents from destroying our regulators?'

Commercial property values in for steep drop, says loan liquidator

Banks starting to unload distressed real estate loans; some sellers taking 50 cents on the dollar

A 50% loss in commercial properties on top of the collapse of the domestic housing market spells 'trouble' with a big SIV. I remember just six months ago when the media was assuring us that commercial properties would float so there were no worries even as domestic dropped. This was sheer nonsense. For some reason, people want nonsense. I can't fathom why.

Forget big returns in the coming years, say stock market bears

Some see 6% annual returns or less for a decade; a return to the Seventies?

6% annual return really isn't bad at all...so long as inflation isn't 7% or greater per annum! The inflation fires worry everyone. The impulse is to fix this via bubbles that grow faster than inflation. This means inflation inflames bubbles and they pop and then everyone loses their shirts and this is why inflation is evil in the end. You can't escape it. No matter what bubbles are used, they all pop so long as inflation is racing at a rate higher than interest rates on lending. Any time lending is cheaper than inflation, this causes bubbles as people try to take advantage of this backwards differential. This is why the recent Fed drops has had a direct effect on gold. Obviously, the hedgers are now using these cheap loans to put into an obvious gold bubble. Fixing all this is laughably simple and the Bank of China is doing this right now: raise interest rates.

Ambac Rescue by Banks May Be Announced Next Week, Person Says

Ambac Financial Group Inc., the bond insurer in rescue talks with banks, may announce an agreement early next week that would save its AAA credit rating and avoid losses on $566 billion of debt, according to a person familiar with the discussions.

Banks may invest about $3 billion in the company, said the person, who declined to be named because no details have been set. The New York-based company rose 16 percent in New York Stock Exchange trading today after CNBC Television said Ambac and its banks were preparing to announce a deal.

The banks need AMBAC and so they will put up the money AMBAC holds so AMBAC can pay them off if their batty bonds they sell go boom. Um, there is a problem here which is connected to the dark, dank cave where the Derivatives Beast dwells! These incestuous deals 'fix' things in the sense that appearances must be made so people are fooled for a while longer. But they don't fix the real problem, indeed, this will simply feed the Derivative Beast even more flesh! It will continue to grow! And they have to make it grow. If it shrinks, this will cause a massive backwards cascade. This is due to the pure magical nature of this critter. It is 100% funny money. It has little basis in any reality. Once this Beast is dragged out of his cave into daylight by the SEC or someone, it explodes and covers the entire planet with $500 trillion in red ink.

From Rob Kirby:

Knowing that so much of what ails Citibank’s finances is effectively “fenced” by their 3 Trillion of notional Credit Derivatives – shouldn’t someone, somewhere be asking what’s really going on over at J.P. Morgan who has 7.8 Trillion in notional of the same stuff that is burying Citibank?

The sub-prime meltdown is categorically and beyond a shadow of a doubt a credit derivatives induced / related event.

And Rob Kirby is right. As usual, if one wants to know what is going on, one cannot go to the mainstream for any analysis. This latest article has a lot of interesting links one of which is very important and I wish to discuss it further. Namely, the OCC derivatives report for the last quarter, the one where everything suddenly imploded. Kirby caught some good information from this report and I greatly encourage reading his article before reading my own analysis here. Then, off we skip to see this mega-report from Hell's Gates, the den of the Derivative Beast:

OCC's Quarterly Report on Bank Derivatives Activities

Each quarter, based on information from the Reports of Condition and Income (call reports) filed by all insured U.S. commercial banks and trust companies as well as other published financial data, the Office of the Comptroller of the Currency prepares a report. That report describes what the call report information discloses about banks' derivative activities.

The current report focuses on OTC derivatives, and discusses key risk areas and performance. Additionally, a Glossary, Graphs and Tables are provided for further detail. Selecting the quarter you are interested in from the list below will take you to the Executive Summary page for that quarter. From that page you may select one of the bookmarks on the side or you may read the report sequentially by either scrolling down the page or by using the navigation icons in the Adobe Acrobat reader.

This is what Senator Dodd should be reading. After reading this report, he should strip naked, run down the Halls of Congress screaming, 'We are so DOOMED!' Then he can scream, 'We must go to K Street and strip the lobbyists of all their clothes and then join McCain in an orgy, I want the sex he got with his bribes! Woooohoooo!' Or something. Gads. I love how everyone at the top pretends they are the bottom. Not bottom feeders, just ordinary people wanting sex with bribe-totting high heeled chicks with glittering Whore of Babylon eyes! Of course, the need for everyone to wink at each other while passing the dying buck is very important here. The news media reports all this with a straight face which is probably why everyone is over here, reading my rants instead.

Above all things, the focus of ire must not fall upon the true causes of all this. Namely, the very rich people who use our banking/investing systems to change the flow of money so much of it ends up in their pockets. We call them 'the global ruling class.' Arab kings and princes also get a lot of this money but the true ruling elites have a very long history of stealing money taken by Asians and Middle Eastern rulers back via the old fashioned method of violent theft via war. Even today, the Arabs have no way of stopping any invasions. But the Dragon of China now has very powerful jaws and sharp teeth: nuclear bombs. Note how war lurks very near when we discuss money. This is obvious: money attracts looters. And empires in need of money always turn violent.

Now on to the OCC report about OTC derivatives. First, we better arm ourselves with the definition of terms. I try to remember many terms but it is easy to be confused so we will refer to this glossary so we don't get hopelessly lost. The Derivative Beast is an ugly and complicated creature with many horns, claws and teeth.

GLOSSARY OF TERMS

1. Bilateral Netting: [Elaine: In ancient mythology, the business about nets are very important and this device is often used to trap the wealth creators or smiths who are lame, for example, when Mars found Venus sleeping with the great smith of the gods of Olypmus.] A legally enforceable arrangement between a bank and a counterparty that creates a single legal obligation covering all included individual contracts. This means that a bank’s receivable or payable, in the event of the default or insolvency of one of the parties, would be the net sum of all positive and negative fair values of contracts included in the bilateral netting arrangement. [Elaine: In other words, blood from stones, funny money magic to replace losses--they use these as an excuse to raid the public treasury, demanding we save them from people who broke these derivative contracts that should have never existed in the first place.]

2. Credit Derivative: A financial contract that allows a party to take, or reduce, credit exposure (generally on a bond, loan or index). Our derivatives survey includes over-the-counter (OTC) credit derivatives, such as credit default swaps, total return swaps, and credit spread options. [Elaine: Note how, as these credit derivatives are triggered and this causes the gun to blow up rather than shoot outwards, the OTC dispensary is the Federal Reserve which is why they had to open a new window last Xmas.]

3. Derivative: A financial contract whose value is derived from the performance of underlying market factors, such as interest rates, currency exchange rates, and commodity/equity prices. Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof. [Elaine: In other words, all the crap that is hitting the fan right now.]


4. Gross Negative Fair Value: The sum total of the fair values of contracts where the bank owes money to its counterparties, without taking into account netting. This represents the maximum losses the bank’s
counterparties would incur if the bank defaults and there is no netting of contracts, and no bank collateral was held by the counterparties. Gross negative fair values associated with credit derivatives are included. [Elaine: we will discover in the next year exactly how much this is, the hard way.]

5. Gross Positive Fair Value: The sum total of the fair values of contracts where the bank is owed money by its counterparties, without taking into account netting. This represents the maximum losses a bank could incur if all its counterparties default and there is no netting of contracts, and the bank holds no counterparty collateral. Gross positive fair values associated with credit derivatives are included. [Elaine: Here lives the $500 trillion Beast I keep talking about.]

6. Net Current Credit Exposure (NCCE): For a portfolio of derivative contracts, NCCE is the gross positive fair value of contracts less the dollar amount of netting benefits. On any individual contract, current credit exposure (CCE) is the fair value of the contract if positive, and zero when the fair value is negative or zero. NCCE is also the net amount owed to banks if all contracts were immediately liquidated.

7. Notional Amount: The nominal or face amount that is used to calculate payments made on swaps and other risk management products. This amount generally does not change hands and is thus referred to as notional.

8. Over-the-Counter Derivative Contracts: Privately negotiated derivative contracts that are transacted off organized exchanges. [Elaine: These are not just over the counter, these are really the back alley dealings originating out of those pirate coves swearing fealty to all those remaining royals in Europe.]

9. Potential Future Exposure (PFE): An estimate of what the current credit exposure (CCE) could be over time, based upon a supervisory formula in the agencies’ risk-based capital rules. PFE is generally determined by multiplying the notional amount of the contract by a credit conversion factor that is based upon the underlying market factor (e.g., interest rates, commodity prices, equity prices, etc.) and the contract’s remaining maturity. However, the risk-based capital rules permit banks to adjust the formulaic PFE measure by the “net to gross ratio,” which proxies the risk-reduction benefits attributable to a valid bilateral nettin gcontract. PFE data in this report uses the amounts upon which banks hold risk-based capital. [Elaine: And these PFEs are FUCKed as we shall see below!]


10. Total Credit Exposure (TCE): The sum total of net current credit exposure (NCCE) and potential future exposure (PFE). [Elaine: How to be PWND]

11. Total Risk-Based Capital: The sum of tier 1 plus tier 2 capital. Tier 1 capital consists of common
shareholders’ equity, perpetual preferred shareholders’ equity with noncumulative dividends, retained earnings, and minority interests in the equity accounts of consolidated subsidiaries. Tier 2 capital consists of subordinated debt, intermediate-term preferred stock, cumulative and long-term preferred stock, and a portion of a bank’s allowance for loan and lease losses. [Elaine: This is what investors are interested in and what is being hammered in public in the last 6 months.]

Now to the meat of this report: it is not very long and if you click on the above site, you can read the whole thing. Here are some excerpts:

Trading revenues from cash instruments and derivative products totaled $2.3 billion in the third quarter of 2007 for all insured U.S. commercial banks (see table below), down 62% from the near-record level of $6.2 billion in the second quarter of 2007.

Last summer, the bubble in this particular field was at its greatest. Stocks were higher than ever, everyone in the mainstream media was lying like crazy about the housing mess and China didn't start its currency war with Japan. But in mid-July, all that began to unwind. Despite this, stocks and derivatives and the banking schemes struggled on for two more months. But already, in mid-August, the first winds of the new Winter began to blow through the Western banks and the naked emperors of the West began to shiver. This is why the present report is so interesting: it shows this process in action. We can now see that they lost over 60%??? WOW. This is a powerful sign that this banking collapse is already passed the landmarks that are signposts for previous major banking collapses such as the 1837, 1848, 1873, 1892, 1907 and 1930 collapses. This is a big one. Not a minor matter. And it has underpinnings so similar to past collapses, it is obvious what happens next, history is crystal clear in this matter. The OCC is supposed to protect our banking system and of course, they ended up as passive watchers.

Like so many others 'asleep at the switch' they couldn't stop a thing. They were living in SOMA land and SOMA was asleep, too, as my previous article detailed. If magicians throw a spell and put ALL the guards asleep, what do they do?

THEY STEAL STUFF! Duh! And this magic spell was thrown by the wizard in the White House and Congress, of course. And they were PAID to do this. By the bankers and brokers. Who wanted all these guards snoring. They did allow the tribe of gnomes working inside these systems to collect the data and even publish it in obscure reports which only a handful of us get to read. So we can gasp with horror as we look at the data below. And here comes all the charts and there are many today [Note: click on all images to enlarge]:

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Of the trading revenue components, interest rate revenues were the strongest, increasing 3%, or $102 million, to a record $3.1 billion. Foreign exchange revenues were also notable at $2.0 billion, a 59% increase from the previous quarter. The credit market turmoil in the third quarter caused revenues from credit trading to fall $3.5 billion to a loss of $2.7 billion. The losses in credit trading resulted from the sharp increase in credit spreads that occurred in the third quarter, creating a difficult environment for trading and hedging, particularly against correlation risks. Overall client demand was healthy as bank clients engaged in derivatives contracts to offset risks arising in highly volatile market conditions.

A 100%+ drop! Off the cliff, isn't this? And the business concerning interest rates shot up by 455%? Talk about runaway numbers. When we see violent swings of any sort when talking about banking, we are talking 'trouble' with a capital 'T'. In this case, equity collapsed while interest soared. And the guys playing games with all this wonder why they can't easily fix things! Even if I can't understand all the implications of all these numbers, the mere fact that they are shooting up and down at the same time is very bad. This denotes severe instability. And it is painfully obvious that things are grossly out of balance. And I know that all books MUST be balanced in the end, there is no open-ended financial system, ever. History makes this abundantly clear.

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This chart shows that equity went underwater by $83 million...before this present quarter which is much worse as we all can plainly see. Just 3 months of collapse ate that much! And these numbers seem small only because of the Derivative's Beast's great size. This is peanuts to him! Back in the old days, pre-Bush, $83 million was a lot of money. Now that we have been spending more than that every year trying to patrol Iraq, it looks smaller and smaller. By the way, only WWII beats the war in Iraq for spending! Isn't that horrible? Note that no one running for President besides Kucinich and Paul talked about this at all.

But this is a huge sum of money. The US government can spend $400 billion extra due to its imperial status but this is only because our enemies are buying our war bonds and holding them so they can use them as tools and weapons against us in the future, nay, even today.

Now look at credit! $2.5 tbrillion in the hole! Even though the total is not in the hole, too, is due to higher interest rates in the Real World coupled with lots of loot flowing in from Arabs and Asians which has propped up the present system. Every week, they pump a few billions more and each time, take a hold of one more segment of our financial infrastructure as well as our industries and all other systems here. This is a fire sale, big time.
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This pie chart shows that 80% of the deals here are in the interest rate sector. Credit derivative trades are only 8%. This could lead us to think nothing is wrong here, there is no dangers. But this is, I fear, due to the fact that derivatives are being withheld from markets due to the collapse of the Western Imperial banking systems. If this trade were to suddenly have to happen, the value of all these derivatives in the markets will be around $0. Look at how the usually safe muni bond sales has vanished in a flash of smoke! Gone. Like the snap of the fingers. This is why we see the stock markets go wild with joy at the though that these bankrupt banks will bail out AMAC who is supposed to be bailing out THEM if these derivatives were to go to market! HAHAHA. Talk about fool's gold!
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Credit risk in derivatives differs from credit risk in loans due to the more uncertain nature of the potential credit exposure. With a funded loan, the amount at risk is the amount advanced to the borrower. The credit risk is unilateral; the bank faces the credit exposure of the borrower. However, in most derivatives transactions, such as swaps (which make up the bulk of bank derivatives contracts), the credit exposure is bilateral. Each party to the contract may (and, if the contract has a long enough tenor, probably will) have a current credit exposure to the other party at various points in time over the contract’s life. Moreover, because the credit exposure is a function of movements in market rates, banks do not know, and can only estimate, how much the value of the derivative contract might be at various points of time in the future. [Elaine: HOLY COW! Who was the lunatic who came up with this in the first place? Arrest him! Greenspan needs to go to jail anyways.] *******************************************************

The first step in measuring credit exposure in derivative contracts involves identifying those contracts where a bank would lose value if the counterparty to a contract defaulted today. The total of all contracts with positive value (i.e., derivatives receivables) to the bank is the gross positive fair value (GPFV) and represents an initial measurement of credit exposure. The total of all contracts with negative value (i.e., derivatives payables) to the bank is the gross negative fair value (GNFV) and represents a measurement of the exposure the bank poses to its counterparties.
*snip*
Credit derivatives have grown rapidly over the past several years. Tables 11 and 12 provide detail on individual bank holdings of credit derivatives by product and maturity, as well as the credit quality of the underlying hedged exposures. As shown in the first chart below, credit default swaps remain the dominant product at 98% of all credit derivatives notionals

The amount of super-risky contracts that lose ALL VALUE should never be more than the reserve ratios at a bank. Why? Because if they vanish, the entire reserves vanish! And the bank will have great difficulties but can be saved. But what if these damn derivatives with potential 0% value are 90% of the value of all the bank's HOLDINGS? This is, it dwarfs the entire VALUE of a bank? So a bank can lose not just its reserves but NEARLY EVERYTHING?

The nature of this Beast is clear: he is much, much, much bigger than all the world's wealth! He is bigger then the value of ALL reserves times ten! On this planet! In all our history! How on earth could this have been allowed to happen? This creature will stomp world banking into the dust beyond what anything has done in the past. The pain of this conversion of wealth to nothingness will hammer the US since we are the world's #1 debtor nation. But it will also hammer Japan, England, France and Germany. All the world will feel the lash of the whip here but the G7 nations will suddenly be dumped into the world's cellar faster than a blink of the eye! This is why the G7 are holding so many meetings. They are still yelling at the Chinese dragon who has snarled back, 'Raise your goddamn interest rates, you FOOLS!' only the opposite is happening as the G7 all fall down into the Japanese money pit.
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This pair of graphs are so very interesting, aren't they? Through the roof! Derivatives changed from being a tool to being a BUBBLE! This is how all bubbles look. Look at how futures were neglected. No interest in piling funny money there! Options: ditto. A slight rise of value and activity. Looks normal, actually. Real business wasn't booming all that much during the housing boom but the business of taking money from the Bank of Japan and turning it into gold was a very busy business! So look at swaps! Wow. Just through the roof, straight upwards. Money poured into that sector like crazy. A classic bubble. And yes, derivatives can be a bubble, ANYTHING from tulip bulbs, baseball cards, stamps, rock collections, paintings, houses, gold, ANYTHING can be turned into an investment bubble. All we need is easy credit.

The second chart shows us the same thing: Interest rate tools shot up and up and up. Classic bubble and an elemental bubble in this case, the underlying cause of our banking collapse. Foreign exchange: nearly flat. Equities: barely an ant under the hoof of the giant interest rate Beast. Commodities, even with a host of gold bugs buzzing about rare metals, barely higher than a crack in the sidewalk compared to the wealth being 'made' in this interest Tower of Babble. Even credit derivatives makes barely a sneeze here.
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Nearly $140 trillion in these interest rate derivative markets. All derivatives are nearly $200 trillion for the US. This is echoed in Europe which also played this exact same game. Globally, it is around $500 trillion so we can see the US has the lion's share. If the EU sees a collapse, this isn't nearly so bad as the US since they are individual nations while we get stuck with the entire $200 trillion and on a smaller tax and population base!
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These graphs show clearly that JP Morgan is hideously overexposed and undercapitalized. As the article at the top explained.
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And now the final graph below: All about how banks in the last three years have ceased to hold anything but the shortest possible contracts:

Note how the US banks hold less and less foreign exchange instruments. Vanishingly small, in fact. Back in 1995, before the US went off the trade cliff with trade deficits greater than $100 billion a year, now trending towards a trillion a year, the FX funds held were the SAME as the IR funds! See how, mirroring our trade deficits which shot upwards, this did the same. Our foreign holdings stagnated or rose only slightly. The similarity of this graph to all bubble graphs in history is quite striking Note how it occurs only in one sector, not all sectors. The rate of climb for the shortest-term instruments is very striking.

Kirby also alerts us to this obscure news that was made as occult as possible when it was released nearly 2 years ago: Intelligence Czar Can Waive SEC Rule

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.

Unbeknownst to almost all of Washington and the financial world, Bush and every other President since Jimmy Carter have had the authority to exempt companies working on certain top-secret defense projects from portions of the 1934 Securities Exchange Act. Administration officials told BusinessWeek that they believe this is the first time a President has ever delegated the authority to someone outside the Oval Office. It couldn't be immediately determined whether any company has received a waiver under this provision.

The timing of Bush's move is intriguing. On the same day the President signed the memo, Porter Goss resigned as director of the Central Intelligence Agency amid criticism of ineffectiveness and poor morale at the agency. Only six days later, on May 11, USA Today reported that the National Security Agency had obtained millions of calling records of ordinary citizens provided by three major U.S. phone companies. Negroponte oversees both the CIA and NSA in his role as the administration's top intelligence official.

Everything is kept secret. The need for secrecy within our empire as well as the bankers who fund our imperial pretensions is very great. All attempts at dragging information out into the open is resisted as much as possible. Even if we set up guardians with switches they can throw if our batty bankers and our goofy rulers decide to run amok are undone via magic spells thrown by Congress. Putting Sleeping Beauties at work at the key switches that control all this is why we go into crash after crash. Putting in more switches is no good if we let this happen again and again.

But always, people are told that if the switch watchers sleep, money will pour out of the Cave of Wealth and there will be no limits. And all will be well for money will be infinite. This stupid story has to be debunked over and over again. The switches must be thrown or all the previous wealth that has been gained will be lost for if the wealth pours out too fast, the Beast stirs and awakens and then comes out roaring flames and flies off to eat us all. Every fairy tale knows this.

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Comments

[Chris]

Re: Bush and Greenspan conspiring...

After Bush became president, Greenspan suddenly started to go to the White House a lot, three times more frequently than he did during Clinton's time. This continued for nearly a year I think it was. Then Bush went to Japan for a state visit. I always wondered back then what they were cooking up together.

[Elaine Meinel Supkis]

Yes. Cooked the goose. :)

[GK]

Hi Elaine,
Did you ever run into Felix Rohatyn and the Big MAC when they were looting NYC in the 1970s?

Looks like he/Bloomberg and possible Obama are looking to lead a corporate take over of public infrastructure after they pull the plug on the US derivative Tower of Babel.

http://www.larouchepub.com/other/2008/3508escalate_bloomberg.html

http://snipurl.com/209nq [www_larouchepub_com]

Jackson's reference to the restructuring of New York by Felix Rohatyn recalled Rohatyn's 1970s chairmanship of the Metropolitan Assistance Corporation ("Big MAC"), which looted New York City blind, on behalf of private bond holders; shut down schools, hospitals, mass transit, and municipal services; and drove almost the entire blue-collar manufacturing sector out of the city. This is precisely the Schachtian model that Rohatyn and Shultz, through their front-men Bloomberg and Schwarzenegger, are promoting today.

Not coincidentally, the same Lou Dobbs show where Jackson embraced Rohatyn, featured an interview with Bloomberg booster Doug Schoen, and highlighted the very Los Angeles press conference where Bloomberg, Schwarzenegger, and Rendell launched their so-called rebuilding America fascist swindle, in league with the Rockefeller Foundation.

[EL JOHNNY]

Eager to apply and verify what E has been reporting on, i.e., mainly that all banks now have liabilities that are greater than their assets and no, or dangerously low reserve funds; that banks are teetering on the edge of going broke; and being concerned about my own cash-in-the-bank liquidity, I have been on a personal quest at my regional/local bank the last several weeks to find and read their published Statement of Condition report.

Our regional/local bank was purchased by Spain's big bank, BBVA several years ago. These condition reports until recently, were always published in the local newspapers where all the banks in the community proudly displayed and bragged about their phenominal asset growth during the past banking year.

Sadly, this once annual pissing contest is no longer played out. After numerous phone calls up and down the bank's organization chart, I am unable to find any bank official who can show me or tell me where to find this bank Statement of Condition, or when they expect it to be published. This bank has about one thousand employees and they all seem to be in the dark.

I am beginning to feel that money in the mattress is safer than cash in the bank where it may disappear in a blink of an eye. I am planning to begin withdrawing my funds because of this lack of confidence by the bank in their own financial health. I am beginning to feel anxcious and threatened.

My bank, rather than recycle savings as investment back into the community, is no doubt looking at savings as a way to cover their losses and prop up their liabilies. I do not want to be a hapless victum of their incompetence.

[Elaine Meinel Supkis]

The Northern Rock mess certainly has unsettled everyone. And the fear of losing savings or investments is great. The general nastiness of any bubble/panic/depression is when everyone takes their money home or translates it into gold or things to be hoarded and commerce shuts down.

Fixing this is easy if one wants higher interest rates. But all governments..look at Japan!...opt for the super-low interest rates that prevent people from saving money in a bank. Then the banks can't lend, etc. The Bank of Japan has been running the endless open window, not the banks where Japanese park their money.

This is bad in a very many number of ways.

[Elaine Meinel Supkis]

About Big MAC: I was very involved in politics back then in NYC. I used to go leafletting on the subways after work, talking about 'deferred maintenance'. 'This is the ONLY program in the government that is running ahead of schedule,' I would say. 'Everything is breaking down faster than expected!'

One day I had to literally jog most of the way to 43rd and Park because all the subways were broken down and the city was paralyzed. I worked for Mannesman Demag, a huge German corporation.

I was shocked to see that I was one of only two people to make it to work. The phone rang. It was the president of the company calling from Germany and he was very angry.

'Where is everyone?' he yelled.

I said, 'The trains aren't running.'

He said, 'What is this, Italy???'

I said, 'No, deferred maintenance.'

He laughed. 'Maybe we should take over and make the trains run on time.' I got a small bonus for running to work, by the way. But this was rapidly destroying NYC's commerce. Since the brokers, bankers, etc, Wall Street floor workers, everyone uses either mass transit or want others to use it so the streets aren't clogged, this motivated everyone to start pushing for changes in deferred maintenance schedules. I also was involved in getting the street lights back. They didn't fix any lights! So one day, I called Channel 2 and told them I was going to use my extension ladder to climb up to lights and fix them myself. Mayor Beame ran out to the first light I was fixing and begged me to stop.

He wanted to arrest me but the cops were on my side and made themselves scarce. So he gave in and did as I requested. What a mess those years were! What a shame.

[D. F. Facti]

Felix Rohatyn and Lazard Freres. Institutional Investor magazine was very high on Felix back in the late '70's. So you know he's got to be a robber baron. Bloomberg and Felix and the rest had better hurry up if they want to take over the infrastructure. Many corporate pirates are beating them to it!

[Phil]

According to the data in the report, we only need to dilute the dollar by a factor of 3 or so to save the banks?

We need like FFR of about 0.5%, right?

JPM, Citi, and BAC should all trade under their book values. They won't if the Fed has its way...

[Phil]

NOW do we know why Bernanke was chosen? He'd play ball with the FFR cuts!!! What a stooge!

[jck]

"This chart shows that equity went underwater by $83 billion."
No it doesn't, the left hand scale is in millions so underwater by $83 million.
"Now look at credit! $2.5 trillion in the hole!"
same as above, you are off by a factor of 1000

[Richard]

Ms Supkis: There you go again, speaking ill of the gold investors, who have had the good judgement to invest wisely by purchasing a hard asset to protect their wealth, seeing the ongoing debasement of the US dollar.

You say: "Obviously, the heders are now using the cheap loans, to put into a gold bubble". You assume there is significant and ongoing putting, as well as a gold bubble; this may not be the case as Alf Field writing in Kitco.com, contents that gold in the near future will go to $1600 and beyond.

[DeVaul]

I have heard so many "contentions" about how high gold will go that your new projection looks somewhat silly, Richard.

Gold is just another commodity, something you find on the ground, in a stream, or deep in a cave. The word "Money" is a fictitious mental construct devised by humans. It has nothing to do with the real world.

Gold will be used and manipulated by the same ruling elites who control all other systems to their own profit and to the demise of everyone else. History has shown this over and over again, but gold bugs simply cover their ears, eyes, and mouths and refuse to understand it.

The human desire to find some kind of magical force field that will surround them and protect them from all danger is very strong and very ancient.

Unless you personally control the price of ALL gold AND its location, it will not protect you. I doubt you control the price or even the location of all gold, Richard.

I suggest you look for a different suit of armour. Really.

Billionaires have no intention of allowing everyone to become like them. They will do whatever is necessary to stop that.

[OC]

For gold investors and yen carry trade:

'The stock markets have "yellow fever" again as the cartel is completely baffled about what to do about the yen and the carry trade. If they weaken the yen to support the stock market, gold goes ballistic. And if they strengthen the yen to put a yen-hit on gold, the stock markets explode and go down in flames. Thus the yen weapon has been neutralized.'

http://www.theinternationalforecaster.com/item.php?topicId=2&articleid=229

'A Toothless Cartel Gums at Gold'

More horns of dilemma!! Damn if u do and damn if u don't!!

[Elaine Supkis]

I'm sorry about the mistakes here. I realized last night, I was very sick with the flu. Still am. Now, I am sneezing every few minutes and this is really nasty stuff.

Looking at numbers with runny eyes isn't recommended. Luckily, most of the next story was researched before I got totally feverish. So I hope this clears up some things. It is all about gold/silver ratios. We have so much to learn about that topic. It goes to the heart of the matter here. And it is really dusty, old stuff, too.

About the horns of dilemma here: we are surrounded by these horns, they have been slowly surrounding us since WWI.

[Elaine Supkis]

JCK: I fixed the mistakes. Thanks for noticing it.

Dear readers: I do like to fix mistakes if possible. So feel free to tell me loudly where they are.

[RB]

My Personal Cold/flu Fix (at the first sign of unease)

Strategy: -boost the immune system.
-unload the bodily tasks.
-alkalinize the overly acidic body chemistry.
-kill the bugs directly.

Tactics: (relative to the above order)
-take echinacea extract, beta 1 3 glucans. Bundle up enough to sweat profusely, but don't chill.
-stop eating solid food. Take lots of fresh fruit juices. Use a good herbal laxative to clean out.
-make fresh vegetable juice with apples, carrots, beets, celery, parsley and a whole lemon. The lemon is mandatory(its acid,I know, but the liver needs it to function better). Make at least a quart per day.
-put the universal germicide/viricide/fungicide known as garlic into the vegetable juice above. Use the juice from at least a half a bulb of garlic. Chase with water if a little too sharp. Take 4 or 6 olive leaf extract tablets per day.

This protocol will knock out the symptoms overnight or, at the most, in a day or two. Regular cold/flu pharmaceuticals only cover the symptoms, but leave the underlying cause in place.

[norcalkid]

That pre-calculus class, back in the Dark Ages, taught me to pay attention to sequences of numbers (as did the 4+ semesters of music theory). So I noticed the average time between banking collapses is about 20 years. Starting with 1848-1873, 25 years between collapses, then 1873-1892 (19), 1892-1907 (15), 1907-1930 (23).

Following the same sequence, collapses/troubles should have occurred-give or take several years- around 1950 (?), 1970 (ugh, "Whip Inflation Now"), 1990 (Bush I), and... ta-da 2010! (or, broadly, sometime between 2008 to 2012) Hmmmm.

To stay sane while digesting the news, am listening this evening to William Lawes: The Royall Consort Suites. Ah, the soothing sounds of early 17th century violin consort music.

[Elaine Meinel Supkis]

The continuity of culture! While I write, I listen to music. While writing this, I was watching Darcy dance ballet to Mahler's 'Das Lied von der Erde.' A moving, sad piece by McMillan.

[Cato]

Elaine, This post is the ultimate guide to derivative exposure. Consider printing up some black and yellow covers and re-title to "Derivatives for Dummies". Leave a big stack at the corner of Wall & Broadway next to the free box for the "Learning Annex".

[Elaine Meinel Supkis]

Along with some apples, eh?

[Cato]

You never know what might throw this fiasco down the basement stairs. Robert Prechter has said for years that changes in societal mood preceeds their actions and finally the real tipping point in market behavior. Show up 4 PM with the apples, tin cups, some pencils and the cast from Oliver Twist. Guaranteed to send the floor brokers running horrified for the R train.

[supra vaider]

So cute! I already like you on FB and also get your posts on Google Reader. :)

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